With a $30B market cap, Exelon (NASDAQ:EXC) is one of the biggest components of the Utilities Select Sector SPDR ETF (XLU), and is always an important name to follow when reviewing the industry. Lots of activity took place at Exelon during the third quarter, and here are some items worth thinking about as we head into earnings season.
One of the major items for EXC over the last few years was the drawn out merger with Pepco Holdings (POM). This merger was completed in March, and investors should expect an update on the integration of the two companies. EXC discussed merger progress during its analyst day in August, and said it is on track to reach expected synergy savings from the merger, and that it had completed 170 of 675 merger commitments.
Exelon currently has a busy regulatory schedule, with numerous rate cases underway. August saw the completion of a case in New Jersey at its Atlantic City Electric subsidiary. Atlantic City Electric was part of Pepco Holdings, and the case was originally filed in March before the merger was completed. The original rate request was for $84.4M, and all parties settled for an increase of $45M.
Its newest rate case was initiated in the third quarter in Delmarva Power & Light's Maryland jurisdiction. It is requesting a $66.2M rate increase for its electric rates. Delmarva's last electric rate increase request was in 2013, when it asked for $22.8M in additional revenue. Five months later, it settled for a $15M increase.
There are five additional ongoing rate cases in the rest of Exelon's jurisdictions. These cases represent over $400M of requested rate increases. The biggest of these is at its Commonwealth Edison subsidiary, which is asking for a $139.6M increase. Exelon expects this case to be completed around December.
The third quarter contained some negative news regarding a court case with the IRS. The court ruled against Exelon in the treatment of $1.2B in profits from the sale of its coal plants in 1999. This ruling has the potential to leave Exelon owing $870M to the IRS in taxes, interest, and penalties.
August also brought Exelon's announcement of the plans to purchase Entergy's (ETR) Fitzpatrick nuclear plant. The 838 MW New York plant will be purchased for $110M. This plant has been struggling with the drop in power prices over the past few years, and Entergy was actually planning to close it in 2017. New York has agreed to some subsidies to keep this non-carbon source of power operating. These subsidies were an important component in getting the deal completed.
The decision to buy Fitzpatrick is in contrast to EXC's June announcement to retire its Clinton and Quad Cities nuclear plants early. Commentary comparing the situation between these nuclear plants should be interesting. Exelon has the largest nuclear fleet in the country, and if the benefits acquired at Fitzpatrick become standard across the country, the company would be a huge beneficiary.
The third quarter is the biggest earnings quarter for most utilities, and it appears that the weather gave Exelon a favorable tailwind this year. Cooling Degree Days in the four largest cities in Exelon's service territory were substantially above last year's levels.
Exelon's guidance for the 3rd quarter was operating earnings of $0.65-0.75/share. With the cooperative weather, odds are it will be in the high end of that range.
